Brazilian Stocks Decline as Commodities Fall on China and Iran

  • Petroleo Brasileiro and Vale drag down Ibovespa gauge
  • Braskem gains on contract for naphtha supply from Petrobras

Brazilian stocks fell, led by raw-material producers including Vale SA and Petroleo Brasileiro SA, as commodity prices sank on weak company profits in China.

Iron-ore producer Vale and state-controlled oil company Petrobras were the biggest contributors to the Ibovespa gauge’s loss on Monday. Indexes of companies tied to energy and commodities were the worst performers among 10 industry groups.

Oil fell after profits at Chinese industrial companies slipped 1.4 percent last month and Iran reiterated its plan to boost exports after sanctions on the country are lifted. Commodity prices have more than halved in the past 18 months, undermining Brazil’s terms of trade even as a deepening graft scandal has led to political paralysis at home.

“It’s the sixth straight month of declining profits in Chinese companies and that is pressuring Vale and Petrobras,” said Luis Gustavo Pereira, an analyst at Guide Investimentos in Sao Paulo.

The Ibovespa fell 0.6 percent to 43,754.13 at the close of trading in Sao Paulo, with 38 stocks down and 23 up. Brazil’s benchmark stock index has lost 25 percent from this year’s peak in May. Vale fell 4.1 percent, the most in a week, and Petrobras declined 3.3 percent. Commodity producers account for about 25 percent of the gauge’s weighting.

Braskem SA gained 1.4 percent percent after signing a long-term contract to buy naphtha with Petrobras. The deal eliminates uncertainty about naphtha supply from Petrobras, which accounts for about 70 percent of Braskem’s requirements, Standard & Poor’s said in a statement.

Latin America’s biggest economy is set to shrink both this year and next. Deepening budget deficits prompted ratings companies to cut ratings on Brazil’s sovereign debt to junk, prompting investors to dump Brazilian assets. Investors have pulled $634 million, almost a quarter of its assets, from the largest Brazil-focused exchange traded fund this year.

“The decline in commodity prices certainly affects Brazil because we export commodities, and producers make up a large part of the index,” said Ari Santos, a trader at H.Commcor in Sao Paulo. “The forecast for 2016 is that if there isn’t strong growth in China and it doesn’t have demand for commodities, we’re going to be affected again.”

Retailer Magazine Luiza SA was the best performer on the BM&FBovespa Small Cap Index, surging 37 percent, its biggest one-day jump on record. Clothing retailer Restoque Comercio e Confeccoes de Roupas SA rose 22 percent.

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